Companies are scrambling for contracts with Iraq amid reports Baghdad has accepted U.N. terms on the long-delayed oil-for-aid program.
Iraq claims to have initial deals with 50 firms from Europe, Southeast Asia, and South America to purchase oil. While uncertainties linger, it's possible limited oil sales could begin as early as this week (see related story, p. 33).
Baghdad said last week it hadn't signed any deals with U.S. or U.K. companies, but Texaco signaled that could change soon.
"If the U.N. resolution goes into effect and the deal is made, we're going to lift some oil from Iraq," Texaco Chairman Peter Bijur told analysts.
Providing Saddam Hussein stands by his promise to abide by the U.N.'s conditions, Iraq could sell as much as $2 billion of oil the next 6 months to pay for food and medical supplies. That translates to 550,000-800,000 b/d, depending on prices. At prices prevailing late last week, Iraq would have been at the lower end of the scale. Under the proposed U.N. deal, Iraq could send as much as 350,000 b/d through Mina al-Bakr on the Persian Gulf and perhaps 450,000 b/d via pipeline through Turkey.
The oil market will have little difficulty absorbing Iraqi crude if and when it reenters the market, predicts OPEC Sec. Gen. Rilwanu Lukman. He notes how prices dipped only briefly on reports that Iraqi exports could resume and said most experts believe oil won't leave Iraq before yearend or early in 1997.
Companies and governments are jockeying for a stakehold in the highly prospective Caspian Sea.
Iran and Russia have agreed to establish a company to explore for Caspian oil, reports Iran's official news agency.
Russia also invited Azerbaijan and Kazakhstan to join the venture.
And Azerbaijan is expected to advance Caspian Sea development by signing a $1.5 billion contract with a group of Unocal, Amoco, Japan's Itochu, and Saudi Arabia's Delta Nimir. Azeri state-owned oil firm Socar plans to sign the contract Dec. 14, allowing the group to operate in Dan-Ulduzu and Azhrafe fields, next to the Karabakh structure in the Apsheron ridge of the Azeri Caspian.
Interests would be Amoco 30%, Unocal 25.5%, Itochu and Socar 20% each, and Delta Nimir 4.5%. Russia's Lukoil also wants a stake in the deal, Azeri officials confirmed, but an accord has yet to be reached.
Azerbaijan also reportedly has inked a memorandum of understanding to let Conoco rehabilitate wells and further develop the Caspian's Guneshli structure. Others lining up for Caspian E&D include Mobil, Chevron, Elf, and the U.K.'s Monument Oil & Gas, Azeri officials said.
Phillips, ARCO, and Texaco are joining forces with Pdvsa unit Corpoven in a joint-venture study that could lead to the development of extra-heavy oil reserves from the Orinoco oil belt's Hamaca region in eastern Venezuela.
The study involves 120,000 acres. If it leads to development, Corpoven estimates 2.4 billion bbl of oil could be recovered, with initial production beginning as early as 1999. Production is estimated at 197,000 b/d by 2006.
Preliminary cost of the project has been pegged at $3.5 billion. Initial interests are Corpoven and ARCO 30% each and Phillips and Texaco 20% each.
Venezuela's multibillion-dollar Sucre Gas Cristobal Colon LNG export project has been put on indefinite hold, due to poor project economics. Pdvsa's Lagoven, Exxon, Shell, and Mitsubishi are Sucre Gas project partners. Pdvsa says the LNG project needs at least a 10% rate of return in real terms. Current ROR is about 10-12%, but officials maintain there is a margin of error. Approved in 1992, the project's cost so far has been reduced to $4.3 billion from the original $5.6 billion, and further cuts are in store. Exxon says the project has already had $50 million invested in it the past few years.
Chevron and partners are doing battle with environmental lobby groups in their efforts to produce gas from federal waters of the Gulf of Mexico off Florida. Chevron, Murphy, and Conoco filed a 16-volume development plan with MMS, seeking to drill and develop an 11-block area covering the Destin Dome Block 56 unit in the Gulf of Mexico, about 25 miles south of Pensacola (see editorial, p. 19). Chevron has drilled three wells on its Destin Dome area leases, two of which are commercial. Its latest discovery was drilled on Destin Dome Block 57 under stiff environmental safeguards (OGJ, Oct. 2, 1995, Newsletter).
Chevron said the 57-1 well tested 41 MMcfd of gas. Besides Block 56 work, other drilling has taken place on Block 97 (OGJ, Apr. 25, 1994, p. 74).
MMS through the end of December will review Chevron's plan for completeness, the first step in the government's approval process. Afterwards, a technical and environmental review will begin. But before development can occur, a public comment/hearing process is expected, which will be lengthy and surely involve heavy opposition, Chevron predicts.
Leasing in federal waters off Florida has been under a 10-year moratorium since 1990 (OGJ, July 2, 1990, p. 26). Companies holding leases prior to that time have been able to drill their leases, however.
Enron's planned $2.5 billion Dabhol power project appears to be on track after a favorable court ruling in Bombay, which bodes well for its plans to import LNG from Qatar to fuel the power plant.
In dismissing the only remaining lawsuit filed against Dabhol Power Co., the Bombay High Court held that all allegations against Dabhol, Maharashtra state, and the Union of India made by the Centre of Indian Trade Unions were without merit. Enron at presstime was taking steps to cease arbitration against the Maharashtra government and will execute financing documents. Construction was to get off high center after financing was completed.
Project phase one, an 826-MW multi-fuel power plant about 100 miles south of Bombay, is to be completed late in 1998. Phase two includes capacity expansion to 2,450 MW, plus a new $560 million LNG regasification plant.
Qatar's supergiant North field, with reserves placed at 380 tcf, is the most likely LNG supply source. Enron signed a letter of intent in January with Qatar General Petroleum Corp. to form Qatar-Enron Liquefied Natural Gas Co., and Enron is continuing talks with Qatar to build a liquefaction plant in Qatar.
Plans call for 2 million metric tons/year of LNG to feed the Dabhol project.
In the U.S., opposition by customers, environmentalists, and potential competitors-including LDC Northern Natural Gas-is mounting over Enron's planned $3.2 billion merger with electric utility Portland General Corp. The merger has been approved by shareholders of both companies but still needs approval by the Oregon Public Utility Commission and the federal government.
Northern Natural, part of a group of eight intervenors, maintains the acquisition should be denied unless Enron demonstrates the merger will provide significant benefits to Portland General customers. Intervenors claim Enron has not shown its acquisition will serve the public interest, which state law requires.
PUC draft recommendations are to be made public later this month, leading to a planned Feb. 18 final PUC decision.
Stronger oil prices are aiding Canadian drilling, predicted to total a record 12,601 wells in western Canada in 1996.
The forecast, by the Petroleum Services Association of Canada, also expects strong activity in 1997 with a projected total of 12,339 wells.
Previous records were 11,716 wells in 1994 and 11,691 in 1985.
The Canadian Association of Petroleum Producers (CAPP) expects Canadian oil production to increase to 2.2 million b/d by 2000 from the current 1.95 million b/d. The forecast excludes production from Hibernia and Terra Nova oil fields off Newfoundland. Hibernia is to start up in 1997, Terra Nova in 2001. CAPP says gas output will rise to 6 tcf/year by 2000 from about 5.5 tcf this year.
CAPP's forecast allows for a gradual decline in oil prices from a current level of about $25 (U.S.)/bbl. It expects gas prices to rise about 10¢/Mcf in 1997.
The Petroleum Marketers Association of America has released an internal survey that shows independent marketers are well along toward meeting an EPA rule that requires them to upgrade or replace underground tanks by Dec. 22, 1998. PMAA found 65% of the tanks of its member companies are in compliance, and 95% of marketers responding to the survey indicate they will meet the deadline.
Petrochemical prices in Europe have fallen from last year's peak, but it looks like producers are in for a period of relatively stable prices and comparatively good returns in the near future.
Chem Systems reports ethylene sold for an average $570/metric ton in the third quarter, down from the March 1995 peak of $650/ton. Roger Longley, director of Chem Systems, told OGJ ethylene is expected to sell at $450-480/ton through the next cycle. This would represent a return on investment of 9-10% for a new cracker, compared with 11% at last year's market peak.
Longley says European petrochemical overcapacity is not as great as had been expected, although larger producers have completed debottlenecking programs.
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